Brand New Additions

Industry CEO’s Debate Impact Of Recent Activity Driven By Major Flags

The dizzying pace of new brand launches that have taken hold of the lodging industry in recent years, and their subsequent impact on the various aspects of the business, was the focal point of a recent discussion among CEO’s.

In the session during last month's Lodging Conference, the executives offered the perspective of brands, as well as owners and management companies.

Geoff Ballotti, President and CEO, Wyndham Hotel Group, staunchly defended the seemingly endless string of brand launches. “Are there too many brands? I don’t think there are…I think you’ll see many more. We’ve heard from our competitors that they’re looking at more. I don’t think there’s any end in sight and I don’t think we’re close to any point of saturation,” he said.

David Kong, President and CEO, Best Western Hotels &Resorts, also contended the brand proliferation is beneficial. “If launching new brands was going to harm the hotel company these hotel companies wouldn’t be in business anymore. I would suggest that these new brands actually attract new customers because not only are they different—they’re location might be different; their hotel spend might be different; and their price point might be different—they attract a different kind of clientele and that, in turn,enriches the brand. Now the brand has that many more customers to tap into. So it’s not necessarily a bad thing,” he said, adding, “it just makes the pie get bigger.”

Meanwhile, Michael Barnello, President and CEO, LaSalle Hotel Properties, provided an owner’s perspective and countered Kong’s argument. “It’s not so simplistic to say when they add another hotel around the corner, even if it’s got a different name, that there’s no impact at all; there is impact. I don’t know if two years ago there were millions of would be Tapestry consumers that were just waiting for this brand to be created. I find that hard to believe. That doesn’t mean people won’t come to use that brand, but they were coming from somewhere. There absolutely is impact there,” he insisted.

While Eric Danziger, CEO, Trump Hotel Group, represents a brand company he nonetheless acknowledged there are too many brands. “How can we ignore cannibalization? There’s room for new brands because frankly some of the old brands ought to be shot in the head and put out to pasture. That’s really the issue. Some brands have no more relevance compared to the new ones,”he said.

Danziger further addressed the issue in the context of consolidation, most specifically Marriott’s acquisition of Starwood. “It’s hard for me to imagine that some owner who bought into a company that had ‘x brand,’and now there’s 30 of them coming through the same distribution, is not being negatively affected. That’s why there are lawsuits against Marriott and Starwood. I really feel that you can be too big and you might be doing a good job for the consumer, but you might not be doing the best job for the owner and that’s who pays the bills,” he said.

Dave Johnson, President and CEO, Aimbridge Hospitality,weighed in from the perspective of a management company. “My personal opinion is that consolidation will continue. I think the advantage is to the brands,”he noted.

To that point, the panelists touted the advantages of having scale.

According to Kong, “I think scale is vitally important intoday’s competitive environment. If you’re a hotel company and you don’t have scale it’s really hard to compete. Marriott can afford to spend so much more money so much more frequently in everything, not just in technology, but also in sales and marketing. You think about the synergy they have. When they go and make a franchise sales call they can sell 30 brands, they can be far more effective. I think the smaller hotel companies are going to find it difficult to compete and that’s why you’re seeing them trying to build out growth by launching new brands.”

Johnson, meanwhile, addressed scale from the operating side following some of the company’s acquisitions. “We were a small company 10 years ago, we’re a large company today. With all the things that we think about with consolidation and scale—procurement, leverage with the brands, access to capital,which are all very important—the number one single issue is talent. Brand managed properties continue to shrink, third-party management companies continue to grow. The reality is I’ve got 27,000 employees. We’re recruiting at the top hotel schools in the world, but what scale has given me is the ability to keep that talent inside and develop that talent and they don’t have to leave my organization,” he maintained.